Burford Aims to Buy Stakes in US Law Firms, Rival Private Equity

Burford Capital is eyeing new territory after investing in lawsuits for nearly two decades: The litigation funder wants to buy stakes in US law firms.

Burford is pitching the idea of purchasing a minority stake to several US law firms, according to Travis Lenkner, its chief development officer. The funder is angling itself as an alternative to private equity companies already backing some firms through deals to provide back office services.

“Burford is probably the most natural investor in this space,” Lenkner said. “We’re not structured predominantly as a private equity fund, so we can be a very patient, permanent investor in a structure like this.”

The move would mark a significant shift from Burford’s bread and butter of investing in single cases and portfolio commercial litigation in the US, but it’s something that’s been on the horizon for quite some time. It follows the rise in outside investment in UK law firms and private equity’s growing involvement in other professional services industries, which could serve as a blueprint.

With $3 billion in market capitalization, publicly traded Burford is big enough to pull its weight in a space mostly inhabited by private equity giants, said Lenkner.

“Our size and capital structure I think gives us a relative advantage when you’re talking about other investors from within the legal finance space as compared to broader private equity,” he said.

Lenkner would not specify the number of law firms Burford is in talks with but said it’s a “significant pipeline” for the company. The firms include leading larger firms as well as boutiques, he said. The plan was first reported by Financial Times.

Lenkner said potential conflicts—such as a firm with Burford investment also representing defendants in a Burford-funded case—would be addressed at the beginning of any arrangement. Burford would be a passive minority investor in a service company, meaning it wouldn’t have access to confidential information in any cases, he said.

A few states in recent years have loosened strict restrictions on outside investment in law firms, opening a path for litigation funders, private equity firms, and others to pour money directly into firms. Big Four consultancy KPMG in February won approval to open a US law firm under Arizona’s alternative business structure program. Utah, Puerto Rico and Washington, DC also have relaxed restrictions on non-lawyer ownership of law firms to varying degrees.

Arizona in particular has become a popular locale for litigation funders and outside capital sources to partake in owning law firms, thereby having equity in the business and freeing law firms from accruing loan interest rates. Mass tort firms in particular have taken to alternative business structures and used them for lead generation and national advertisements.

In states that don’t allow nonlawyer ownership, some capital providers have used “managed service organizations” as workarounds. Law firms are split in these arrangements, with the legal work flowing through a traditional lawyer-owner operation and the MSO controlling firm assets and selling back-office services to the law firm for a fee. The model has traditionally been used to allow outside investors into accounting firms and medical practices.

Lenkner says Burford is exploring both options, but the MSO structure might be more accessible for national law firms.

“This is for us an incremental step, but an exciting one,” said Lenkner. “It’s where the profession is going and the question is not whether these transactions will happen, it is how quickly and with whom.”